Goldman partners call for float delay
Wednesday 23 September 1998
The doubts have been compounded by problems with the 100 or so retired partners. They have objected to attempts to renegotiate a formula guaranteeing the value of their shareholdings, although investment bank shares have fallen 40 to 50 per cent in value since the financial crisis broke in August. This has wiped up to $15bn off the $30bn value of the bank at the market peak in July.
Goldman's pre-tax profits in the third quarter fell from $932m to $754m, it reported yesterday. The company warned that the fourth quarter results would be hit by the market volatility.
Goldman's 300 partners are scheduled to meet early next month to finalise the listing's terms. However, the confidence of the co-chairmen, Jon Corzine and Henry Paulson, who until last week were insisting the float would go ahead, has begun to ebb as opponents seize on the market fall as vindication of their opposition. An investment bank source said last night: "The talk is that they will pull it."
The issue with the so-called limited partners arose over a deal struck when the plan to float was made earlier this year. Exceptionally, they were to be guaranteed 1.55-times the book value of the bank on listing.
However, Mr Corzine has sought to renegotiate these terms to reflect the fact that if the value of their holdings remained static while the overall value of the bank fell, they would end up with an unacceptably large share of Goldman's total capital. This would hamper attempts to redistribute shares to Goldman's "marzipan layer" - senior executives just below partnership level - which was one of the key justifications given by Mr Corzine for changing the structure of Wall Street's last sizeable partnership firm.
With only 10 per cent of the stock to be sold to outsiders, and staff barred from selling for three to five years, the bank has insisted all along that the listing is not about raising cash.
However, many of the 100 retired partners who account for a quarter of Goldman's capital are believed to have borrowed against the value of their holdings to fund their retirement.
Sources close to the bank's senior management acknowledge that recent financial market volatility has complicated the flotation plans but insisted no decision had been taken.
The fear among senior management is that if the float were pulled now it would be years before the opportunity came around again.
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